Nebraska utilities exploring new options for buying power

OMAHA, Neb. (AP) - As Nebraska’s utilities decide whether to sign new long-term deals with power suppliers, they have new options that likely didn’t exist the last time they decided where to buy electricity.

A handful of local utilities in the northeast corner of the state have already decided to switch from the Nebraska Public Power District to a different supplier to take advantage of the flexibility offered by the power grid in the region today.

The utilities making the switch believe they will save some money, but mainly they wanted a shorter contract and more flexibility to buy renewable energy from other providers on the side.

“We have to do what is right for our citizens and our businesses in town,” South Sioux City administrator Lance Hedquist said.

South Sioux City signed a contract with Lincoln Electric System for electricity starting in 2017. A group of other utilities - Northeast Nebraska Public Power, Wakefield and Wayne - all plan to buy electricity from Big River Electric in Kentucky starting in 2018.

All 75 of NPPD’s wholesale customers are weighing their options this fall because the state’s largest utility wants its customers to sign new 20-year contracts that start in January, to help it plan for the future.

Having most of its customers signed to long-term deals will help NPPD pay for major projects if it needs to sell bonds, spokesman Mark Becker said. Wholesale customers accounted for about 75 percent of NPPD’s $692.2 million revenue last year.

NPPD officials remain confident that most of their customers will sign new long-term deals because it’s difficult for a utility far away to consistently deliver cheaper power.

“We do have a vision to provide low-cost energy to customers throughout the state of Nebraska,” Becker said.

But buying power from elsewhere is possible now because of the changes that have been made to the power grid and because Nebraska joined the Southwest Power Pool in 2009.

The Southwest Power Pool, which operates electric transmission lines across Nebraska and 13 other states, has been gradually opening up access to power since the late 1990s. It has moved slower than its peers across the country, but utilities that buy power from another firm now have the ability to switch to another provider.

One of the key innovations that regional transmission organizations offer is one-stop shopping for transmitting power. Instead of having to contact numerous utilities along the way to arrange use of transmission lines, utilities can just contact the Southwest Power Pool to send electricity across its territory.

“Now with open access, if you’re willing to pay the transmission costs, you can buy power from anywhere,” said Nick Brown, president and CEO of the Southwest Power Pool.

While the power grid is certainly capable of transferring power from Kentucky to northeast Nebraska, it also offers other options. For instance, besides sending its own power across several states, the Kentucky-based power generator can also supply electricity to the eastern edge of the Southwest Power Pool and then purchase power for its Nebraska customers from a source nearby.

Mark Schultz, general manager for Northeast Nebraska Public Power, said the utility decided to contract with the Kentucky utility because it didn’t want to be locked into NPPD for 20 years.

The utility business is evolving as environmental regulators work to restrict greenhouse gases and as renewable energy sources, such as wind and solar, continue to grow.

“We felt like we could see five to 10 years into the future, not 20 to 25 years in the future,” Schultz said.

Nebraska’s big utilities have been gradually adding more renewable energy, but they continue to rely heavily on coal for a significant part of their power.

Nebraska remains one of the cheapest states for energy but has seen rate increases in recent years. The state now has higher average prices than neighboring Iowa, but Tim Texel, executive director of Nebraska Power Review Board, doesn’t expect many towns to start buying electricity elsewhere.

“I don’t see it as becoming all that common,” Texel said. “I think it’s difficult to compete with NPPD’s price.”

Wholesale customers signing a new 20-year agreement will see an increase of 0.6 percent next year. Customers not signing a new long-term contract will see a 3.8 percent increase in 2016.